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Credit cards against Fixed Deposits

As the cliche goes ‘Credit cards are necessary evil’, nevertheless one cannot downplay its significance in current financial scenario across all demographics. Whether you are a teenager in college, retired personal subsisting on pension, or a rookie with income less than 5 lac CTC, more and more transactions require this mode of payment. The very nature of credit card is that it is an unsecured loan from bank without any collateral except your proof of income. Without this proof banks do not usually provide this facility as it is a high risk endeavour but at the same time there is a huge market out there which means a threat that can be converted into an opportunity.

So what is this opportunity that these banks have perceived? They just connected the two random dots – Fixed deposits which is the most conventional saving methodology known to all of mankind and inconsistent income group. Bingo! What you have here is a lien marked against your FD that banks can rely upon in case of payment default and hence they can provide this facility overcoming the risk factor associated with it. So if you are one of those people looking for a credit card facility and at the same time do not have a regular income of 5 lac INR or one who has a very bad credit history then the best option will be to use your FD as a means to procure the same. The credit limit given by the banks for this type of cards is somewhere around 80 to 100 % of the actual FD value and the interest rates are much lower than the regular credit cards. Also the icing on the cake is the window you get for repayment which is somewhere between 45 to 60 days and you still get the interest on your FD.

Now it is inappropriate not to mention the downside to this deal. A person opting for this facility need to understand that their FD is tied up with the card and any payment default will impact the liquidity of FD. Although the interest rates may be low for these type of credit cards defaulting will compound it and ultimately boomerang on your FD figures. So it is imperative for borrowers using this facility to apply necessary precaution before they swipe the card and ensure that it is mostly used for medical emergency, shopping for necessary household items, fuel expenses etc.

To summarise, this deal is the best option given by banks for those who are looking for short term credit and at the same time do not fulfil necessary criteria for obtaining regular credit card. Happy Spending guys!!!

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